Micro-Mechanics Holdings (MMH) reported 1QFY13 results which fell short of our expectations. Revenue declined 4.6% YoY to S$9.9m, or 8.0% shy of our forecast. Net profit slid 5.6% to S$1.2m and was 12.4% lower than our projection. Sequentially, revenue and net profit fell 4.3% and 13.4% respectively; despite first quarter fiscal year being one of MMH’s seasonally stronger quarters. Its Custom Machining & Assembly division proved to be the main drag on its earnings for 1QFY13, although a bright spot came from a fifth consecutive quarter of steady gross margin increment for its Semiconductor Tooling division. Looking ahead, MMH highlighted the lack of visibility in the near-term; although it would continuously work to improve its product cycle time to enhance its competitiveness. We pare our FY13 and FY14 revenue forecasts by 5.8% and 4.8%, and our PATMI projections by 10.5% and 5.2%, respectively. Maintain HOLD, but with a lower S$0.29 fair value estimate (previously S$0.325).
Y13 results below our expectations
Micro-Mechanics Holdings (MMH) reported 1QFY13 results which fell short of our expectations. Revenue declined 4.6% YoY to S$9.9m, or 8.0% shy of our forecast. This was MMH’s sixth consecutive quarter of YoY sales decline. Net profit slid 5.6% to S$1.2m and was 12.4% lower than our projection due to weaker-than-estimated revenue and higher effective tax rate, although this was partially offset by better-than-expected gross margin. Sequentially, revenue and net profit fell 4.3% and 13.4% respectively; despite first quarter fiscal year being one of MMH’s seasonally stronger quarters.
CMA division the main drag
Both of MMH’s core segments registered YoY decline in revenue, with its Custom Machining & Assembly division causing a bigger drag once again. Sales for this division dipped 18.4% YoY to S$1.3m, but what surprised us was the -2.4% gross margin recorded during the quarter (1QFY12: 4.8%). Nevertheless, there was a positive which came from its Semiconductor Tooling division, which reported a fifth consecutive quarter of steady gross margin increment. Hence overall gross margin of 49.0% in 1QFY13 (1QFY12: 45.1%) for MMH came in above our 48.1% estimate. Management attributed this to efforts to improve its productivity and manufacturing process, thus resulting in a reduction in its direct labour requirements.
Maintain HOLD given tepid near-term outlook
Looking ahead, MMH highlighted the lack of visibility in the near-term, while cost pressures are also expected to exacerbate the challenging operating environment. Management would continuously work to improve its product cycle time to enhance its competitiveness and responsiveness to its customers. We pare our FY13 and FY14 revenue forecasts by 5.8% and 4.8%, and our PATMI projections by 10.5% and 5.2%, respectively. However, we believe that MMH would still report growth in both its topline and bottomline for FY13 given the low base in 2Q and 3Q FY12. Maintain HOLD, but with a lower S$0.29 fair value estimate (previously S$0.325), still based on 9x FY13F EPS.
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